Fine words, weak delivery

Julia Gillard
and
Tony Abbott
are big on policy pillars but weak when it comes to implementing the policies needed to maximise Australia’s prosperity in the decades after the mining boom. Nothing about that will be changed by the early announcement of the September federal election.

There will not be separate times for governing and politics. Gillard and Abbott are engaged in the political struggle of their lives. They have put their political interests before the national interest for the past 2½ years, and they are not going to stop now.

Gillard promises a crusade on school reform which, if properly implemented, could make an important difference to future competitiveness and prosperity. She also speaks passionately about the government’s national disability insurance scheme.

But she won’t insist on efficiency improvements in the public schools or cut other government spending to the extent needed to properly finance the reforms. The savings made in the May budget will be limited and their economic quality will be degraded by her unwillingness to sacrifice votes.

Almost certainly she will end up fudging both the budget and her signature reforms. Under Gillard, the schools and especially the disabled will have to be satisfied with small instalments and fine words until the revenue tide turns.

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As for Abbott, he too is full of fine words like “government should do for people what they can’t do for themselves and no more". But it seems they don’t apply to the wealthy private schools or the residents of the Murray-Darling Basin or to any other circumstance in which the choice is between principle and vote maximisation.

Gillard and Abbott are in election-year handout mode, and neither is likely to be much troubled about the longer-term economic consequences.

Gillard’s industry and innovation policy will be thick with waffle about rebooting industry and creating world-class manufacturing clusters for the Asian century. But, like Abbott’s vision of a five-pillar economy, it will be mainly about harvesting votes by delivering handouts to rent-seeking industries and unions.

The last thing either leader will be interested in is the raft of difficult choices facing Australia if it wants to continue its economic miracle in a time of weakening commodity prices and declining population growth.

Sustained high rates of growth in real per-capita incomes can come only from productivity growth.

That certainly requires reform in government regulation and infrastructure – about which the Rudd and Gillard governments have done far too little, probably for fear of angering the unions.

But it also demands the kind of competitive environment in which businesses must invest in innovation and productivity growth in order to survive – in which the productive expand at the cost of the unproductive.

Abbott, in his determination to out-bid the government for the blue-collar vote, is even weaker. His “anti-dumping" policy threatens to build an invisible wall of protection around the economy that will allow inefficient producers to survive at the expense of consumers, productive industries and economic growth. They are the weak pillars in their visions of Australia’s economic future.